Entrepreneur Insight

Emergency Funding for Businesses to Ride Out the COVID-19 Outbreak

The latest on how to keep your business alive during a pandemic and market volatility

Headlines about the widespread COVID-19 pandemic and plunging stock market have all but dominated the news cycle. With fears mounting and market movements grinding to a halt, small and mid-sized businesses are undergoing a colossal stress-test.

“Americans need cash now,” said Treasury Secretary Steve Mnuchin at a press conference. “You can think of this as something like business interruption payments.”

In a push to help struggling businesses, the U.S. has made new announcements to keep markets liquid, calm people down and encourage more spending. Specifically, the Trump administration has signed the Coronavirus Preparedness and Response Supplemental Appropriations Act, an $8.3 billion emergency spending package that includes an additional $20 million in administrative expenses for the Small Business Administration (SBA) to carry out its disaster loan program. Trump has also instructed the SBA to increase funding for up to $50 billion in low-interest loans for impacted small businesses. Funding is subject to Congressional approval but business owners can submit their applications immediately. This amount is considerably larger than the amount of loans the SBA’s lending programs made in 2019, which was $28 billion across 63,000 approved loans.

“Small to mid-sized enterprises (SMEs) are the backbone of our economy,” says Danny Chan, vice president and branch manager at East West Bank. “If the funds are used diligently, which makes the banks’ roles very critical, the funds are going to be very effective for many SMEs.”

At a time when markets are extremely volatile and global uncertainty is widespread, businesses are hunkering down to weather the storm. In larger cities such as Los Angeles and San Francisco, many businesses from bars to gyms have been mandated to close until further notice. With social distancing and self-quarantining precautions in effect, many wonder about where and when their next paycheck will appear.

“We are available only for pick-up, take out or delivery, while managing the occupancy and traffic in and out of the restaurant per the CDC’s recommendations,” says one restaurant owner in Pasadena, Calif. who declined to have his name published due to uncertainty about the state of the business. “We are currently in some tough times and don’t know what can potentially happen next in all of this.”

To help alleviate financial burdens in Los Angeles, mayor Eric Garcetti also announced an $11 million economic relief package for impacted small businesses. This will consist of no-fee microloans that range from $5,000-20,000 to help cover working capital.

The Treasury Department is also deferring tax payments for three months to help small and mid-sized businesses. Businesses that normally have a deadline of April 15 will now have three additional months before having to file federal income taxes. This move could add $200 billion to the U.S. economy and help businesses cover unexpected financial losses.

(Photo credit): Gettyimages.com/andresr

Click here to tap into our business continuity toolkit for more resources on how to manage your business during disasters

Process for accessing SBA’s COVID-19 disaster relief funding

For businesses with incomes affected from COVID-19, there might be some financial relief on the way.

“Everyone has been affected by this, especially those in the hospitality industry,” says Wai-Chun Li, senior vice president and manager of SBA lending at East West Bank. “All of this has created a domino effect, from a slowdown in supply chain production, to the ensuing panic of the people. What we need to know is the scope of coverage, but that too is uncertain because we don’t know how long this pandemic is going to last.”

The SBA will be offering designated states low-interest federal disaster loans applicable to small businesses and private nonprofit organizations. Each individual business or organization can receive up to $2 million in financial assistance to help overcome temporary loss of revenue. All applications can be found on SBA.gov/disaster.

“The interest rate for these loans are at a low 3.75 percent, and $2 million is a substantial size loan that could potentially help a lot of people,” says Li. “But depending on the trajectory of the virus and how much longer the situation might last, $50 billion in emergency loans may not be enough in the long run.”

While the interest rate for small businesses is at 3.75 percent, the rate for nonprofits is 2.75 percent, with long-term repayment options available to all loan recipients for up to 30 years. The SBA does emphasize, however, that the situation will be determined on a case-by-case basis. “We must remind all prospective and actual borrowers though, that in the end, this is still a loan and not a grant,” says Chan.

Alternatives to SBA’s disaster relief funding

1. Talk to your local loan officer or SBA agent to see if you can qualify for other types of loans

Loan officers are at the forefront of understanding the economic hardships placed on businesses. Even after you have applied for emergency funding, the timeline of receiving it remains ambiguous. At the very least, while the government scrambles to keep markets liquid and figure out how to distribute cash to ailing businesses, business owners can speak to their local bank loan officers and SBA loan agents to discuss their current situation.

“This is a very unique moment, and we’re all in it together,” says Li. “If it’s a temporary working capital crunch that a business is facing, or a financial hiccup due to the coronavirus, I think loan officers would be very understanding and willing to help in these situations.”

"If it’s a temporary working capital crunch that a business is facing, or a financial hiccup due to the coronavirus, I think loan officers would be very understanding and willing to help in these situations.”

-Wai-Chun Li

(Photo credit): Gettyimages.com/erhui1979

2. Leverage credit cards

For those with good existing credit, leveraging a credit card with a 0 percent introductory interest period could help in covering immediate needs while also racking up reward points. Cards with cashback percentages could also help in the long run, especially when coupled with a monetary welcome bonus after spending a certain amount within the first few months of opening the account.

3. Contact your local chamber of commerce to participate in their initiatives

According to the U.S. Chamber of Commerce, a number of statewide initiatives are available to help small businesses. The New York City Department of Small Business Services, for example, will be offering loans and grants, while the San Francisco Chamber of Commerce is looking at ways to waive fees for businesses with low margins. You can find a list of local chambers of commerce listed by state here.

4. Crowdfund online

Others have posted their financial woes online to ask the community for crowdfunding support. Fundraisers around the world have been added to the GoFundMe platform where individuals can go to donate to a business in need. The Seattle Hospitality Emergency Fund on GoFundMe, for example, is raising money for hospitality workers in the city of Seattle whose hours have been curtailed because of the crisis. In a time of social distancing, digital-now plays a huge role in raising awareness not only locally, but globally, when it comes to asking, giving and receiving help.

Facebook has also announced a $100 million program with 30,000 grants available for small businesses in more than 30 countries. In addition to these cash grants, the social media giant will also offer ad credits to help businesses promote themselves during this time.

Cutting costs by renegotiating

“Let’s not sugarcoat it. Retail is going to suffer because I think that nerves are going to get worse in the next couple of weeks,” says Gregory Tannor, executive managing director and principal at Lee & Associates. “It’s really a function of people going out again, and it’s mom-and-pop restaurants that are shutting their doors because only allowing deliveries or takeout aren’t going to help make ends meet. They have expenses to pay every single month, which may cause them to never reopen again.”

While accessing revenue may be beyond the control of many businesses right now, expenses can still be dialed back. “Think about your cash, think about your debt and think about your income when you’re looking at your spending,” says Stewart Easterby, operating partner at Greycroft. Cutting down on expenses will be a difficult area to navigate for business owners who are responsible for the livelihoods of employees. While some utility, phone and internet companies are easing shutoffs and waiving late fees to help struggling customers, there are still other bills to pay.

Now is a good time to go back and renegotiate some of the deals and long-term contracts to see if there’s any potential wiggle-room. With suppliers, contractors and landlords all feeling the effects of today’s market conditions, situations may vary. Be sure to take advantage of federal tax breaks if you need to buy more time. Businesses can also use accelerated depreciation to reduce taxable income in the short-term. Keep inventory tight and low to help reduce the chance of taking losses for unsold items or paying for storage and maintenance costs. Talk to suppliers for more flexibility around inventory purchases and delivery.

“I believe that the markets will rebound,” continues Tannor. “Going back to the 2008 recession, a tremendous amount of people had to close their shops, but look at how we bounced back. Once we’re permitted to have social gatherings again, businesses will come back because people will get out there and start shopping, eating, working out and just start living again.”

For more tips go to our business continuity toolkit with the latest resources on how to deal with the pandemic